Aarons 2007 Annual Report Download - page 37

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NOTE C: PROPERTY, PLANT AND
EQUIPMENT
Following is a summary of the Company’s property, plant,
and equipment at December 31:
(In Thousands) 2007 2006
Land $ 50,176 $ 26,195
Buildings and Improvements 96,804 57,373
Leasehold Improvements and Signs 89,476 79,543
Fixtures and Equipment 66,311 54,148
Assets Under Capital Lease:
with Related Parties 9,332 9,534
with Unrelated Parties 10,564 10,564
Construction in Progress 19,042 10,719
341,705 248,076
Less: Accumulated Depreciation
and Amortization (94,667) (77,782)
$247,038 $170,294
NOTE D: CREDIT FACILITIES
Following is a summary of the Company’s credit facilities at
December 31:
(In Thousands) 2007 2006
Bank Debt $ 82,884 $ 15,612
Senior Unsecured Notes 80,000 90,000
Capital Lease Obligation:
with Related Parties 9,542 10,095
with Unrelated Parties 9,364 10,022
Other Debt 4,042 4,245
$185,832 $129,974
BANK DEBT — The Company has a revolving credit agree-
ment with several banks providing for unsecured borrowings
up to $140.0 million. Amounts borrowed bear interest at
the lower of the lender’s prime rate or LIBOR plus 87.5 basis
points. The pricing under a working capital line is based
upon overnight bank borrowing rates. At December 31,
2007 and 2006, respectively, an aggregate of $82.9 million
(bearing interest at 5.83%) and $15.6 million (bearing interest
at 6.22%) was outstanding under the revolving credit agree-
ment. The Company pays a .20% commitment fee on unused
balances. The weighted average interest rate on borrowings
under the revolving credit agreement was 5.99% in 2007,
5.97% in 2006, and 4.42% in 2005. The revolving credit
agreement expires May 28, 2008.
The revolving credit agreement contains financial
covenants which, among other things, forbid the Company
from exceeding certain debt to equity levels and require
the maintenance of minimum fixed charge coverage ratios.
If the Company fails to comply with these covenants, the
Company will be in default under these agreements, and all
amounts would become due immediately. At December 31,
2007, $122.7 million of retained earnings was available for
dividend payments and stock repurchases under the debt
restrictions, and the Company was in compliance with
all covenants.
SENIOR UNSECURED NOTES — On August 14, 2002, the
Company sold $50.0 million in aggregate principal amount
of senior unsecured notes in a private placement to a con-
sortium of insurance companies. The unsecured notes bear
interest at a rate of 6.88% per year and mature August 13,
2009. Quarterly interest only payments at an annual rate
of 6.88% are due for the first two years followed by annual
$10,000,000 principal repayments plus interest for the
five years thereafter. The notes were amended in July 2005
as a result of entry into a note purchase agreement for an
additional $60.0 million in senior unsecured notes to the
purchasers in a private placement. The agreement was
amended for the purpose of permitting the new issuance
of the notes and amending the negative covenants in the
revolving credit agreement.
On July 27, 2005, the Company entered into a note
purchase agreement with a consortium of insurance
companies. Pursuant to this agreement, the Company and
its two subsidiaries as co-obligors issued $60.0 million in
senior unsecured notes to the purchasers in a private place-
ment. The notes bear interest at a rate of 5.03% per year and
mature on July 27, 2012. Interest only payments are
due quarterly for the first two years, followed by annual
$12 million principal repayments plus interest for the five
years thereafter. The $50.0 million note purchase agreement,
of which $20.0 million is outstanding as of December 31,
2007, contains financial maintenance covenants, negative
covenants regarding the Company’s other indebtedness, its
guarantees and investments, and other customary covenants
substantially similar to the covenants in the Company’s,
revolving credit facility, other note purchase agreement,
and its former construction and lease facility, as modified
by the amendments described herein.
CAPITAL LEASES WITH RELATED PARTIES — In October
and November 2004, the Company sold eleven properties,
including leasehold improvements, to a limited liability com-
pany (“LLC”) controlled by a group of Company executives,
including the Company’s Chairman, Chief Executive Officer,
and controlling shareholder. The LLC obtained borrowings
collateralized by the land and buildings totaling $6.8 million.
The Company occupies the land and buildings collateralizing
the borrowings under a 15-year term lease, with a five-year
renewal at the Company’s option, at an aggregate annual
rental of $883,000. The transaction has been accounted for
as a financing in the accompanying consolidated financial
statements. The rate of interest implicit in the leases is
approximately 9.7%. Accordingly, the land and buildings,
associated depreciation expense, and lease obligations are
recorded in the Company’s consolidated financial statements.
No gain or loss was recognized in this transaction.